Some Confidence Is Lacking In Mesaieed Petrochemical Holding Company Q.P.S.C.'s (DSM:MPHC) P/E

With a price-to-earnings (or "P/E") ratio of 25.2x Mesaieed Petrochemical Holding Company Q.P.S.C. (DSM:MPHC) may be sending very bearish signals at the moment, given that almost half of all companies in Qatar have P/E ratios under 12x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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For example, consider that Mesaieed Petrochemical Holding Company Q.P.S.C's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mesaieed Petrochemical Holding Company Q.P.S.C will help you shine a light on its historical performance.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Mesaieed Petrochemical Holding Company Q.P.S.C would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. As a result, earnings from three years ago have also fallen 61% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 7.3% shows it's an unpleasant look.

With this information, we find it concerning that Mesaieed Petrochemical Holding Company Q.P.S.C is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Mesaieed Petrochemical Holding Company Q.P.S.C's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Mesaieed Petrochemical Holding Company Q.P.S.C revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Mesaieed Petrochemical Holding Company Q.P.S.C that you should be aware of.

You might be able to find a better investment than Mesaieed Petrochemical Holding Company Q.P.S.C. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.